Ag Policy Blog

Noting Efforts to Grow Water Quality Trading Programs

A conference this week in Lincoln, Neb., focusing on water-quality markets reflects one of the ways USDA is seeking to work with EPA on conservation to improve water quality by searching for carrots to increased voluntary conservation instead of using the big stick of regulation.

USDA issued a news release Thursday highlighting more than $2 million in Conservation Innovation Grants specifically to develop water-quality trading markets. That went along with a couple of new web tools for nutrients and environmental markets laid out by USDA.

DTN's Todd Neeley and I split some time at the conference this week in Lincoln. It had a strong agenda and a lot of good panelists. I wish I could have spent more time learning and networking at the conference, but I found out about it late and just didn't have the time built in to spend a couple of days there.

Speakers indicated from their work on water-quality trading that it is difficult to get farmers engaged in projects. A lot of producers worry that getting involved in a water-quality trading project would later lead to regulatory issues. Others just have a lot of things on their plate and likely see the programs as more of a problem than a benefit.

Basically, the way a water-quality or nutrient-trading project works is that a major point source -- such as power plant or waste-water facility -- has got a pollution problem and doesn’t have the money to pay for the needed upgrades. It's cheaper to pay farmers or landowners to implement more conservation practices on their land that would translate overall into lower nitrogen and/or phosphorus going into the water.

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In most cases, one of the big drivers for a nutrient trading project comes from the fact a particular watershed is under a Total Maximum Daily Load numeric limit. The TMDL, which sets aggregate limits on nitrogen and phosphorus, becomes the stick for everyone to reduce pollutants, including non-point sources. An EPA staffer said non-point sources (aka farmers) generally are required to show they are meeting their part of any load limits before they are allowed to generate credits to trade. In other words, these producers should already have good stewardship practices on the ground.

This issue regarding TMDLs complicates the idea of water-quality trades in the Mississippi River basin. The basin doesn't have a TMDL so there is less rationale for point sources to work with non-point sources on ways to reduce nutrient loads. The problem in the Mississippi basin is exacerbated by the fact that most of nutrient loads come from non-point sources. Yet, the Hypoxia Task Force -- made up of federal agencies and 12 states in the Mississippi basin -- still has ambitious goals to reduce nitrogen and phosphorus 20% over the next 10 years down the Mississippi River. The ultimate goal is to try to achieve a 45% reduction of N & P from all sources to stablize the size of the Gulf of Mexico hypoxia zone.

"So that is a heavy lift," said Ellen Gilinsky, a senior advisor on water quality at EPA. "We are going to need creative solutions here."

EPA, farm groups and a whole hose of others oppose setting a TMDL for the Mississippi basin.

World Resources Institute did a study looking at water-quality trading prospects in the Mississippi basin. It concluded that agriculture is the most cost-effective way to reduce nitrogen loads, but a lot of political and customer challenges push back against that argument. WRI's Michelle Perez noted major upstream municipal waste-treatment facilities noted there was no real policy driver to push a Mississippi basin trading program. Moreover, Illinois and Indiana ratepayers might have a real problem with their local utility companies buying water-quality offsets from a farmer in Arkansas or Louisiana.

Still, there are initial efforts to put together a water-quality program are moving ahead in Iowa. Those programs, however, face long odds because of the scope of non-point source nutrient issues in Iowa and the state's overall small population -- 3 million people. Demand is there among farmers for conservation efforts, a representative from the Iowa League of Cities noted. Iowa farmers generally apply for billions more in conservation programs than there is farm-bill funding available for enrollment.

Brian Brandt, a farmer from Ohio, representing American Farmland Trust, talked about some of the basic challenges of getting an average farmer to consider a water-trading program. Mainly, smaller or mid-sized producers are dealing with low prices and lower net earnings. When making investments right now, those investments need to make money. Tiling, for instance, can lead to a boost in production and easier access to fields during wet planting seasons. Brandt told water-trading advocates that a water-quality or nutrient-trading program must have enough financial incentive to get farmers interested.

Policies on trading vary from state to state, mainly because there are no national standards for non-point sources.

Then there are questions of fairness for farmers or landowners. How should early adopters of strong conservation practices be treated when receiving credits compared to a farmer or landowner who only jumps in and opts to change practices when the prices lead them to rethink what they are doing? A baseline needs to be established on operations to determine where they should fall on a scale for following practices that reduce nutrient runoff or leaching.

Verification of farm practices and credits are critical because water-quality projects that are the most verifiable also are the most defensible.

Other questions revolve around tiling and how to treat farmers who want to trade water-quality credits but also extensively tile their land. That is an issue they are trying to work through in the Ohio River nutrient trading program.

There was a real emphasis to bring in more agricultural groups to the table. Such efforts, however, require better outreach. The EPA-USDA event had a few farmers from different organizations, but overall the water-quality conference was a choir of folks who already know a lot about water-quality trading sharing stories with a lot of other people who know a lot about water-quality programs. Pre-conference outreach to cast a wider net was somewhat lacking. For instance, the first news release or media alert I got about the conference came from Food & Water Watch, which issued a release last week actually calling on agencies to cancel the event because F&WW doesn't think such nutrient trading programs really work. Nonetheless, it got me curious.

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Chris Clayton

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